We Need to Set the Ground Rules for Programmatic Auctions says BidSwitch’s Barry Adams

The ability to influence programmatic auction dynamics is a powerful thing and can tip the balance in favour of one ad tech vendor over another. So it has hardly been surprising that we’ve seen various companies gaming auctions, the most high profile of which was Index Exchange’s ‘bid caching’ (where bids were being taken from one auction and being used for later ad requests).

One company that has a bird’s-eye view of the programmatic ecosystem is BidSwitch, who help connect supply-side platforms (SSPs) and demand-side platforms (DSPs). Barry Adams, BidSwitch’s general manager, characterises a lot of what we’re seeing happen in programmatic auctions as an “arms race” between the supply-side and the demand-side.

Supply-side platforms are using new technologies and tweaks to auction dynamics in order to attract higher margins, which can boost their own profits and/or be passed on to publisher partners. Meanwhile the buy-side is, as always, trying to buy as efficiently as it can, paying as little as possible for as much value as it can get on behalf of advertisers.

Adams say this arms race isn’t in itself particularly problematic and it’s a normal tension in most markets. It only becomes a problem when the lack of transparency hides what the other side is doing. As programmatic trading depends on highly complicated technology, even when standards exist there is still room for independent innovation by players on both sides. The problems arise when changes are made without the knowledge of the other side.

“It’s safe to say that where some companies have seen they can take some advantages [by manipulating auction dynamics], they have done that,” said Adams. “So they will for example run auctions that aren’t declared clearly in the bid request, so it’s not clear to the bidder or the buyer what’s going on in the auction, and that can include dynamic floors or mixed second price, or worse, they may declare that something is second price but it’s actually first price.”

Bid Caching Not an Isolated Incident

Index Exchange’s ‘bid caching’ scandal in August was a prime example of how a vendor can make changes that work in their own favour. The company was taking a buyer’s bid for one impression, and the re-entering that same bid into other auctions targeting the same individual on the same site, but later into their journey (impressions shown later into a user’s journey are usually regarded as less valuable, hence the controversy).

Adams said that practices similar to bid caching aren’t too uncommon, particularly by some of the smaller ad tech vendors trying to be more competitive.

“If you have a large share of the market and you’re very scaled up, there’s less of an incentive for you to do anything non-transparent,” he said. “Putting aside Index Exchange, the largest exchanges typically run more transparent auctions with fewer unknown or undeclared variables in their auction. Since SSPs compete with one another to generate revenues for publishers, those without a scale advantage face the challenge of creating advantages for themselves in other ways. For many this is in the form of unique value-added offerings – unfortunately for others it can come in the form of unsavoury auction practices.”

While we’re still seeing these kinds of practices being outed from time to time, Adams does think things are improving. “Everyone realises now that you’ve got to move with the trend towards transparency, or you’re really putting your business at risk,” he said.

But he added that the sorts of problems which have cropped up have underlined what he believes is the biggest challenge for programmatic trading – trust.

“When advertisers don’t trust where their money goes, that’s the glass ceiling for our industry, and we have to address it,” said Adams.

Time to Outline the Rules of the Game

BidSwitch has itself played a role in helping introduce transparency to the programmatic trading ecosystem. The company can’t explicitly see how SSPs and DSPs are operating across all activities, but it can spot patterns as bids pass through its pipes which occasionally hint at dodgy practices.

“We often try to intervene” said Adams. BidSwitch won’t straight out accuse a company of bad behaviour, but whenever the company spots patterns which hint at auction gaming, they may advise that company to change their behaviour “because in the long term that’s the smart play”.

But Adams says to really restore trust to programmatic trading, we need the rules of the game to be clearly defined.

“There’s a limit to the transparency when you’re talking about real time auction dynamics,” he explained. “But what should be more simple is establishing the guidelines or the rules of the game by which we play. When people are clear on what the rules are, they can optimise against those rules to try to win for themselves and their clients.”

There are already protocols out there which seek to set a framework for how programmatic trading should operate, such as the IAB’s OpenRTB. We’ve also seen a flurry of activity in recent weeks of individual companies or groups of players trying to lay down the ground rules.

MediaMath for example a few weeks ago sent an open letter to its supply partners laying out a ‘Code of Conduct’ which they must comply with – those found to be gaming auctions will be kicked off MediaMath’s platform. Sizmek have also explicitly laid down a series of requirements for SSPs it partners with.

Then earlier this month, a consortium of exchanges including OpenX, Rubicon Project and SpotX, released their own set of principles which they pledge to abide by, promising to establish “clear and unambiguous operating standards”.

These are steps in the right direction says Adams, but these ‘bottom up’ approaches must be joined by a top down approaches, like efforts from the IAB. On this front, Adams said companies like his own have more of a role to play than they may have previously had.

“From our perspective as a technology provider sitting between SSPs and DSPs, we have a view on trading practices that many buyers do not,” said Adams. “Many of the practices called out by the buy side are not very new (auction games, bid duplication, etc) but some of these platforms lack the technical ability to accurately determine when SSPs are conducting unwanted practices.”

DSPs have already been contacting BidSwitch asking for help understanding if and when these sorts of practices are taking place. But Adams says it’s important for trade bodies like the IAB to talk with companies across the supply chain to get a full picture of what’s going on. “One of the limitations we have is we don’t see performance on the ad serving side, because we’re between an SSP and a DSP, we’re a pass through,” he said. “But there’s much else on both ends, on the publisher side and the advertiser side, which we don’t see.”

By knitting together insight from across the supply chain, trade bodies will be best equipped to lay down and enforce the ground rules for how programmatic trading works. When that’s the case, they may have a shot at restoring trust in digital advertising.